Nitrogen
Another quiet week for urea trade as players await the next Indian tender for a price signal.
Many of the Northern Hemisphere markets are enjoying their summer vacation and buyers are happy to take a wait and see approach for now. Gas prices in Europe continue to rise and cause a lot of noise in the nitrogen market – however the European application season is now done and the European buying programme is now focused on stocking up for next spring. While the Europeans have to import more nitrogen fertilizers than usual because their production is down, they also have a little bit of time to play with. Right now they are happy to sit back and watch the markets in the hope of lower prices to come.
The Middle East urea price did show a $60/t drop this week as a urea cargo was booked to East Africa in the mid-$550s FOB (which translates to around $600/t CFR Mombasa or Dar es Salaam). Currently the equivalent cost of urea to Durban is around $620/t before port costs. Unfortunately the rand losing more than 3% against the dollar means that the cost of urea in rand terms only declined around 5% this week and not the full 9% that the dollar cost moved.
The outlook for urea prices remains bullish in the medium term as Q4 is historically a strong demand period, but it seems there may be further price reductions over the next couple of weeks until the Indian urea tender is issued. In our view, now is the time to buy urea if you have not already covered your urea requirements. We see urea rising steadily from September onwards for the rest of the year.
Lack of demand continues to push ammonium sulphate prices down and the reductions in urea prices will also affect amsul prices. Ammonium nitrate trade was very quiet this week and prices were static, largely due to the afore-mentioned holiday season in Europe. As with urea, amsul and AN will probably have a lull for a few weeks until the Q4 seasonal demand kicks in.
Ammonia had another very quiet week this week with prices remaining unchanged, despite European gas prices touching on $75/MMBtu earlier in the week. With downstream fertilizer prices mostly registering declines, it will be difficult for ammonia producers to achieve any increases in the very short term. Ammonium phosphate prices have shown some big declines in the past few weeks which has also removed support for ammonia prices. Of course the situation could change quickly as we move into Q4 in a month or so but for now the outlook for ammonia is flat/stable.
A contributing factor to stable or moderately declining nitrogen prices across the board is the relative stability of crude oil prices. Crude oil remains in the mid-$90s per barrel and has sat within that range for the last 3 weeks – which is the lowest sustained price for oil that has been seen in the last 6 months, Nitrogen prices and crude oil prices have a strong long term correlation, especially in the cost of production of nitrogen products.
Phosphates
Ongoing weak demand hurts phosphate prices this week, as big price drops are reported in Brazil, USA and the Middle East. Input cost reductions are giving producers some relief and protecting margins.
The Brazilian MAP price dropped a further $50/t this week, which translated to a similar reduction of $50/t in the Middle Eastern price index. We use the Middle Eastern price for our import parity costing, so the landed dollar value of MAP dropped by almost 6% this week. The rand devaluing by more than 3% meant that the rand import parity costing only moved 2.2% down.
Phosphate rock prices saw their first fall in 2 years as quarterly contracts for Q3 were settled between Morocco and India and showed declines of $7-15/t. Similarly, some phos acid tenders registered reductions of $400-500/t, which will make the Indian Q4 phos acid price negotiations interesting.
The outlook for phosphates is largely unchanged, with further price reductions likely as supply/availability remains good and demand is weak. On the production cost side, the major inputs of sulphur and ammonia remain flat at best, and as mentioned above, phosphate rock prices have come down. It is difficult to see any realistic scenario where phosphate prices strengthen over the remainder of the year – our expectation is that prices will continue to decline gradually over the coming month or 2, and then will probably stabilize as demand picks up late in Q4.
 Fertilizer -Prices slide down for all three nutrients as demand is weak across the globe.
Potash
Potash prices continue to retreat as the Brazilian potash price slides another $50/t this week. The South African potash price remains unchanged this week but will be under pressure as prices fall around the world and slow local buying leaves importers under pressure.
Prices in other regional markets have also been falling, although at a slower rate than Brazil. Potash producers are now targeting those markets, such as South-East Asia, to try and achieve better netbacks. The likelihood is that this tactic will drag the potash prices in those regions down in line with Brazil. The potash market tends to have the most ‘momentum’ on price and when the price rises or falls, it usually continues with that trend for some time. Prices of around $800/t are still extremely high by historical standards and all potash producers are reporting record profits.
The supply concern that drove potash prices up has proven to be less of an issue than the market feared and it is lack of demand that has tiled the supply-demand balance into relative oversupply and is pushing prices down. The price decline will not end until demand has been re-stimulated and the main driver to increase demand will be more affordable potash. In other words, prices will need to fall further before demand really recovers. Improved farm economics in the form of higher crop prices will also help but the increase in crop prices still lags the increase in potash/fertilizer prices.
General Market Outlook
Crude oil sat in the $90/bbl range for the third week while gas prices continue to climb. Grain prices continue show positive growth on the back of various American data releases. The Rand losing almost 4% to the Dollar has hurt farmers on input costs but helped local grain values.
Brent Crude prices dropped into the low $90s early in the week before returning to $95/bbl currently. This is 30% down on the recent peak of $124/bbl seen in June this year. There are differing views from the different oil authorities as to what is driving oil prices but the outlook is for oil to remain at current levels or possibly rise into the low $100s over the remainder of the year. In gas markets, the Europeans had a tough week with the EU gas price hitting $75/MMBtu earlier this week and currently trading at $67/MMBtu. The US natural gas price has remained above $9/MMBtu this week as US domestic production struggles to keep pace with gas consumption.
The USDA’s (US Department of Agriculture) WASDE (world agricultural supply and demand estimates) report revised down the US corn acreage for this season, which is supporting higher corn prices. CME corn prices showed some small gains again this week. Safex white and yellow maize numbers also saw gains but the weakening rand also contributed to this. Soya has bucked the trend and declined this week as US yield estimates suggest a bigger crop, while sunflower gained 3% week on week on the Safex.
The shipping market has seen rates easing over the past few weeks driven by a number of factors. The primary driver for lower prices has been the concerns around recession and declining cargo volumes. Lower crude oil prices do translate into lower ship fuel costs. Lower shipping rates have helped reduce the landed cost of fertilizers into our region but the weakening rand has eaten up most of these gains.
Latest Direct Hedge quotes for urea and MAP swaps in USD:
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